The flagship of the bigger Volksbanken group, which includes dozens of regional banks, will liquidate its non-core businesses and transfer its core operations to another group bank, probably in the first half of 2015, it said on Thursday.

"VBAG's aim is to carry on speedily with the wind-down process that has been running successfully for the last two years in order to fully liquidate its assets, and to meet its liabilities to creditors on the relevant maturity dates," it said.

Reuters had earlier cited sources familiar with the plan as saying the flagship would be turned into a "bad bank" and wound down in a move that aims to resolve a looming capital gap at the group.

The plan must be approved by the European Central Bank, which will take over direct supervision of the euro zone's largest banks next month.

The ECB declined to comment on Thursday's announcement.

The restructuring comes as the ECB conducts a health check of the big euro zone banks' balance sheets, with the results due later this month.

Sources close to the situation had told Reuters in August that Volksbanken, which has already got 1.05 billion pounds in public aid, did not have enough capital to pass a stress test which is being conducted as part of the ECB's health checks.

Finance Minister Hans Joerg Schelling, who was Volksbanken chairman until last month, said this week that Austria was preparing a response that did not involve state aid in case Volksbanken fails the stress test.

Austria has a 43 percent stake in OVAG after a 2012 rescue.

(Additional reporting by John O'Donnell in Frankfurt; Writing by Carmel Crimmins; Editing by Keiron Henderson and Greg Mahlich)

By Michael Shields